Modeling Securities Class Action Outside the United States: The Role of Nonprofits in the Case of Taiwan

Abstract

Countries around the world are getting more interested in implementing procedures similar to those for class actions in the United States in order to deter corporate fraud and to enhance investor protection. This paper first explores the key elements in establishing a securities class action device in foreign countries and presents several examples that illustrate the difficulties in modeling a U.S.-style securities class action regime outside the United States. This paper then presents the case of Taiwan as a novel example insofar as the law granted a nonprofit organization, the Investors Protection Center, a monopoly in the organization`s pursuit of securities class actions. Herein, the Securities Investors and Futures Traders Protection Act of 2002 has two important functions: it provides several provisions that relax restrictions in civil procedures that are hostile to group litigation, and it mandates the establishment of the Investors Protection Fund, which provides financial support for securities litigation. The non-distribution constraint of nonprofit organizations provides the Taiwan approach a natural insulation from the problem of frivolous lawsuits suffered by the United States, where lawyers` incentives serve as the main motive behind securities class action practice. And although the Taiwan government`s control over the Investors Protection Center has raised public concerns about the independence and the fairness of Taiwan`s securities class action practice, the innovative practice of Taiwan`s securities class actions serves as an excellent source for comparative legal studies, especially for countries whose government exercises most regulatory powers but whose goal is to promote private securities law enforcement.